Loyola Sullivan, Minister of
Finance and President of Treasury Board, today provided a mid-year update on
the province’s finances.

"Last March government
brought down a demanding budget which required difficult decision-making. Our
goal was to turn around the serious fiscal situation we inherited one year
ago, and we are beginning to make progress. At this point in the fiscal year,
we are ahead of our budget targets," said Minister Sullivan.

At budget time the deficit was
projected to be $839.6 million. Based on results to date, the deficit for
2004-05 is now expected to be $707.5 million, an improvement of $132.1
million, of which $102.5 million is one-time revenue as a result of prior
year adjustments.

"While the deficit has
improved since budget time, it is still the second highest in our province’s
history, and record deficit levels only add to our record debt levels,"
said the minister. "There is still much work to be done to gain control
of our province’s finances."

With the revised deficit, the
province’s net debt is now projected to be $12.2 billion. "This is
almost double what it was 10 years ago, and for a smaller province like
Newfoundland and Labrador, this is a crippling debt-load. We must work hard
to ensure that the debt does not increase," said Minister Sullivan.

The variance in the deficit
results primarily from an increase in oil prices, revised federal estimates
of equalization and new health care money.

Oil royalties are currently expected to
be $78.5 million higher than forecast at budget time, reflecting higher
oil prices.

Equalization and Atlantic Accord offset
payments from the federal government have increased by $89.6 million from
the budget forecast, as a result of a positive adjustment with respect to
federal re-estimates.

Health and Social Transfers are
expected to be $30.1 million higher than projected in the budget. The main
reason for the increase is additional revenue from the federal government’s
new Ten Year Plan to Strengthen Health Care. (The province expects to
receive $34.4 million for the 2004-05 fiscal year, which will be offset in
part by federal re-estimates to the health and social transfers.)

Personal income tax is anticipated to
be $4.2 million higher than forecast last March.

For HST, the province has received
indications from the federal government that there could be large negative
adjustments to HST revenues. The preliminary estimate for the 2003 and
2004 tax years shows possible negative adjustments of over $64.2 million.
This has been factored into the estimate for the accrual deficit.

"On the expenditure side, the budget
projections overall remain on track," said Minister Sullivan.
"Throughout the year, it is common to experience variances in
expenditures, and overruns in one area are offset by savings in another. With
continued vigilance, we expect to maintain budget targets for
expenditures."

In terms of cash requirements, the 2004-05
budget projected a need of $361.6 million. The total cash requirement is now
projected to be $118 million, an improvement of $243.6 million. This change
is primarily due to the variances listed above, as well as the deferral of
the census loan repayment.

"From a cash-flow perspective, one-time
revenues have contributed significantly to the improvement. Those revenues
will simply not be available for the next budget," said Minister
Sullivan.

The minister said that while some progress has
been made in addressing the province’s fiscal situation, the work is far
from over. "We have experienced some improvements in revenues for this
fiscal year, but it is unrealistic to expect these to continue on an on-going
basis. We will have to find further ways to generate revenue while still
controlling our expenditure base. We will continue to carefully monitor
budget pressures, with the focus on maintaining our budget targets,"
concluded Minister Sullivan.

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